How GST Goods and Services will impact the wallet of the common man

Since the passing of the GST Goods and Services Constitutional Bill by the Rajya Sabha in August last year, the country has been preparing itself for the new tax regime. The new GST Goods and Services law is India’s biggest tax reform initiative which is expected to improve compliance levels, increase government revenue, and create a common playing field for businesses by amalgamating a host of central and local taxes.

On the face of it, GST Goods and Services seems to be a mixed bag with some of the necessities becoming cheaper, while the others might get more expensive.

The seamless input tax credit across the value chain will eliminate a cascading effect. This is expected to result in a reduction of prices of products…

To begin with the basics, GST Goods and Services is a tax on goods and services, with a comprehensive and continuous chain of input credit set-off from the manufacturer to distributor to retailer till it reaches the end customer. It is essentially a tax only on the value addition at each stage. Through the input tax credit mechanism, a supplier at each stage is permitted to set-off the GST Goods and Services paid on the purchase of goods and services against the GST Goods and Services to be paid on the supply of goods and services.

GST Goods and Services

The seamless input tax credit across the value chain will eliminate a cascading effect. This is expected to result in a reduction of prices of products—as the adage goes, “A penny saved is a penny earned!”

On the face of it, GST Goods and Services seems to be a mixed bag with some of the necessities becoming cheaper, while the others might get more expensive. While in the long run, the Goods and Service Tax might have a favorable effect on most of the sectors of the economy, in the short run, as with the most of the reforms, the benefits seem to be limited. Based on the experience of GST Goods and Services implementation in other countries. India could observe an inflationary impact at the onset of the reform, which might fade away once the legislation sinks in.

Things that might get costlier

The present rate of service tax is 15 percent and is applicable to most of the services. Excluding essential ones like cultural activities, ambulance services, and certain pilgrimages and sports events. Under GST Goods and Services Tax, this rate would increase to 18 percent making the services more costly. For some goods like edible oil, textiles, etc. the excise duty is nil and the VAT in several states is 5 percent. Hence, the total cost of such goods is close to 8%-9%. With GST Goods and Services, the cost of such goods is likely to increase and this might put a hole in the budget of a common man.

Some of the things which could get costlier once GST Goods and Services come into play include: